The Securities & Exchange Board of India (Sebi) is in the process of allowing foreign portfolio investors (FPIs) into the Indian commodities futures market, with the regulator aiming at releasing detailed guidelines in the next few months, chairman UK Sinha said on Tuesday.
The announcement comes after the commodities regulatory body, Forward Markets Commission, was merged with Sebi late last month.
Sinha said the regulator will also come out with new guidelines for credit rating agencies to reduce risks for debt mutual funds. Ratings agencies shouldn’t suspend ratings of a company without a proper explanation, he added.
“In certain cases, paper being rated as investment grade, the credit rating was suddenly suspended; that must be explained to investors and to the public at large. We also look whether there were any conflicts of interest in the ratings process,” Sinha said at the Ficci capital markets conference.
Sinha said Sebi “has begun the process” of looking into concentration risks, sector risks as well as company risks with respect to mutual funds’ exposure to debt papers. The regulator would also look at whether there were any conflicts of interest in the ratings process.
The regulator’s comments came amid concerns over corporate debt investments by asset managers after a unit of JP Morgan in India suffered significant market losses in late August when autoparts maker Amtek Auto’s debt was downgraded by rating agencies.
“India is one of the first countries where rating agencies are regulated and the system prevalent here is robust. What we started looking at was that why is it that in certain cases, where the papers were being rated investment grade, suddenly the rating was suspended,” Sinha said.
Sebi will also come out with new set of regulations for distribution of mutual fund (MF) products along with simplification in the know your customer (KYC) norms. “What we are looking at is how to make KYC norms simple and digital. For instance there is no need for in-person verification in a KYC,” he said.
Sinha noted an increase in use of the e-commerce platform and low penetration of mutual fund products in the country, and said Sebi has set up a committee under Nandan Nilekani to suggest ways for boosting the MF industry.
“Hopefully, in next couple of months, we will be coming out with a new set of regulations of distribution of product,” Sinha said, adding that the aim was to make transactions in mutual funds “easy and convenient”.
The new set of norms for mutual fund distribution are being worked on and “we will be able to bring about an entirely new paradigm in distribution of mutual fund products”, Sebi chairman said.
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